Institutional environment, technological innovation capability and service-oriented transformation

The external institutional environment is the foundation for the survival and development of enterprises. Enterprises can only obtain legitimate and heterogeneous resources through continuous strategic reform and institutional innovation to match their internal strategies with the external environment. The paper selected the manufacturing enterprises that implemented service-oriented transformation strategies in China from 2016–2019 as a sample based on the realistic background of frequent institutional changes and overlapping market changes during China’s economic transformation. The impact of different aspects of the institutional environment on service-oriented transformation and the moderating role of technological innovation capacity were examined empirically. The results showed that (1) improved government governance greatly facilitates the service-oriented transformation of manufacturing enterprises, which was more pronounced within the industry. The regulated development of the market facilitated service-oriented transformation within the industry in the short term, while the impact on cross-border transformation lagged. The improvement of the legalized business environment was conducive to the transformation of enterprises and promoted intra-industry transformation significantly more than cross-industry transformation. (2) Technological innovation capability strengthened the influence of institutional environment on intra-industry transformation, but had no significant impact on the relationship between institutional environment and cross-border transformation. (3) The moderating effect of technological innovation capability was markedly heterogeneous in terms of property rights and regional heterogeneity. The findings of this study provide an important reference for policy makers to break through the current institutional barriers to transformation and upgrading of the manufacturing industry, and to reshape and optimize the institutional environment for the integration and development of the secondary and tertiary industries.

Introduction Service-oriented transformation and deep integration of manufacturing and service have become an inevitable trend. Because of its characteristics of agglomeration and heterogeneity, service-oriented transformation puts forward higher requirements for the supply of rules and institutions [1]. In practice, there are institutional barriers to value co-creation, global network construction, digital technologies, big data applications, free flow as well as optimal allocation of human capital and productive service factors between the secondary and tertiary sectors [2,3]. Discrimination in ownership, administrative monopolies and the "paradoxes in servitization" sometimes occur. The relative lags in institutional construction affect the enthusiasm and initiative of manufacturing enterprises to transform into a service-oriented industry. In addition, under the influence of de-globalization and partial trade protectionism, the uncertainty of international demand increases, while the growth of domestic demand slows down. The layout of global production networks and integrated supply chain management based on digital technology has led to the transformation of Industry 4.0 to Society 5.0. It creates an inverted pressure for manufacturing enterprises to transform into product service systems. It also innovates with the current and upcoming manufacturing and social paradigms [4,5]. Efficient institutional supply and adaptation of existing institutions become major challenges in deepening structural reform on the supply side and promoting the transformation and upgrading of the manufacturing industry.
Regarding the relationship between institutional innovation, institutional change and service transformation, scholars have done a lot of research and came up with a series of important conclusions. Firstly, the institution were sticky and path-dependent. There was a clear correlation between institutional change and industrial development [6,7]. It was conducive to the adjustment and servitization of manufacturing industries to release the effect of institutional supply [8,9]. Secondly, the government, as an important external institutional body for manufacturing enterprises, played an irreplaceable role in the transformation of the serviceoriented manufacturing industry [10]. The innovation of marketing institution can guide the coordinated development of manufacturing and productive services [11]. Thirdly, the synergy between institutional innovation and technological innovation drove the transformation of manufacturing enterprises [12]. This indicated that technological innovation changed the traditional product-centered manufacturing model and became a direct driver of service innovation [13]. Moreover, technological innovation was never a stand-alone effect, but was influenced by the institutional environment in which the enterprises operated [14]. The synergy of technological and institutional innovation drives the implementation of enterprise innovation strategies [15,16]. The above research established a major theoretical basis for this paper. However, in most of these studies, the institutional environment is discussed as a whole, or the role of only one aspect is discussed. This does not allow for an in-depth interpretation of the complexity of the institution in the context of economic transformation from different perspectives. It is also difficult to guide companies to respond well to institutional pressures from different quarters. For economies in transition, the rules of the game are changing in a fundamental and comprehensive way. Digital technologies and big data are being widely applied and global value networks are gradually established. The paradigm shift from mass production to on-demand, personalized customer-driven and knowledge-based production has reshaped manufacturing, increasing institutional complexity and environmental uncertainty [17]. It is therefore important to explore the impact of different isomorphic aspects of the institutional environment and how these different logics together influence the practice of servitization transformation within manufacturing in a complex context, in order to clarify the relationship between institutional innovation and service-oriented transformation. It is also conducive to institutional design and innovation in today's complex institutional context. It can help the production paradigm shift rapidly from product to demand and service, and provide theoretical support for the construction of the institutional environment that matches the service-oriented transformation.
An effective external institutional environment is the basis to the survival and development of a firm, providing boundaries of legitimacy to pursue and a relatively stable operating framework for innovation and strategic change. But institutional change is usually characterized by clear path dependence, which makes it difficult for efficient and superior institutions to spontaneously replace the existing institutional situation. This requires companies to comply with the rules and conditions established by the external institutional environment [18]. while obtaining legitimacy and support, they should constantly engage in technological innovation to break through the excessive constraints of the institutional environment and avoid falling into a "legitimacy" crisis. In addition, to find a reasonable way to change the system, overcome the path dependence of the system and build an institutional environment that matches the transformation and upgrading of the manufacturing industry. Therefore, technological innovation is an indispensable support factor for the servitization transformation of manufacturing enterprises. However, there is a lack of evidence in theory and practice regarding the influence of technological innovation capabilities on the relationship between the different dimensions of the institutional environment and the servitization transformation of manufacturing.
To address the above issues, this paper builds a driving model of service-oriented transformation from the perspective of institutional environment based on institutional theory. On this basis, a sample of 4313 manufacturing enterprises implementing service-oriented transformation strategies in China from 2016 to 2019 is selected as the study population. The differential impact of institutional environment on service-oriented transformation is empirically tested, and the moderating role of technological innovation capability is further examined. It is expected to provide an important empirical basis and reference for manufacturing enterprises in transition economies to realize service-oriented transformation, break down institutional barriers and optimize the institutional environment for the integrated development of the secondary and tertiary industries. The contributions of this paper are: firstly, it clarifies the mechanism of the influence of different institutional environments on service-oriented transformation and provides evidence to support manufacturing enterprises' choice of a service-oriented transformation strategy that matches the institutional environment. Secondly, it confirms the heterogeneous role of technological innovation capabilities in the service-oriented transformation of manufacturing enterprises and enriches the boundary conditions of the institutional environment affecting it. Thirdly, the specifics of the interaction between the institutional environment, technological innovation capabilities and servitization transformation of manufacturing enterprises are elucidated from the perspective of property rights and regional differences.

Institutional environment and service transformation
The new institutionalism theory emphasized that the institutional environment is an important reference point for organizational behavior decision-making and strategy formulation [19]. In order to obtain legitimacy and support from the environment, organizations must comply with the institutional rules and constraints in the external environment. As a result, when the institutional environment changes, enterprise behavior will adjust accordingly. In general, the better the institutional environment, the more it reduces the moral hazard of purchasing services and encourages cooperation in the process of service-oriented transformation of manufacturing enterprises, as well as improving predictability of behavior and reducing transaction costs. This facilitates the development of contract-intensive productive service activities and promotes the service-oriented transformation and upgrading of manufacturing enterprises. Conversely, if the institutional environment is imperfect, the policy continuity is weak and the business environment is poor, then it will be difficult for the market to function. The process of services-oriented transformation of manufacturing enterprises then faces the double dilemma of "legality" and "efficiency". Transition risks and market uncertainties will hinder its further transformation and upgrading. Institutions, as a set of rules of the game in human society, are formal, such as political systems, economic rules, the spirit of contract, etc. There are also informal ones, such as customs, practices, norms, etc. Scott (1995) constructed a theoretical model of a three-dimensional institution, including mandatory, normative and cognitive elements. It has been widely used by domestic and international scholars because it covers all factors of institutions [20]. Among the domestic studies, the most influential is a set of marketization and business environment indices developed by Fan & Wang (2011) [21]. Institutional theory suggests that market mechanisms, such as market order, market rules, market competition, market supervision, market allocation of production factors, and marketbased technological innovation systems, play an important role in transition economies. However, the development and strategic transformation of enterprises still rely to a large extent on non-market systems, such as government and social networks sources for support in terms of land, funding, policies, resources and others [22]. At the same time, a legal business environment is also an important guarantee for the high-quality development of enterprises as well as the optimization and upgrading of industrial structures. So the service-oriented transformation of the manufacturing industry demands the government deregulate, improve the level of governance, enhance the legalization level, strengthen contract supervision and property rights protection, improve the market mechanism and avoid opportunistic behavior. Therefore, in the context of China's current economic transition, this paper followed Fan & Wang's ideas of an institutional environment, focusing on three dimensions, the level of government governance, market standardization and legalization.
Governments play an important role in all stages of a country's economic development, including the formulation of macroeconomic policies and the improvement of specific economic institutions. The government is the important external institutional subjects of the manufacturing enterprises. In the early stages of service transformation, the government plays an essential role in top-level framework design, policy guidance, tax support, information security, platform construction and priority allocation of resources [23]. To a certain extent, the government's administrative intervention has compensated for market failure and guided the development direction of the market economy [24]. The supportive behavior of the government breaks down many barriers to the development of the manufacturing services industry and gradually changes the tendency of government departments to "work in their own way" and "emphasize manufacturing rather than services". The degree of integrity of a government determines its administrative capacity and efficiency. A clean government can curb distortions in public policy implementation and unfair resource allocation caused by corruption and achieve openness, fairness and impartiality [25]. A higher level of government governance can enhance the precision of policy guidance and the effectiveness of resource allocation. It helps manufacturing enterprises expand into higher value-added services. Thus, the following assumption is made: Hypothesis 1: There is a positive correlation between the level of government governance and the service-oriented transformation of manufacturing enterprises.
The dual power of a strong government and a strong market has been present during the transition phase of the economic system. A well-developed market institutional environment is a hallmark of the enterprise's pursuit of efficiency. Firstly, a comprehensive market mechanism promotes technological progress, scientific management, freedom of market competition, lower transaction costs and increases inter-firm exchanges, cooperation or contracting. As a result, there will be more mergers and acquisitions, and more opportunities for manufacturing to transform into service-oriented enterprises [26]. Secondly, in the environment of a sophisticated market system, information is freely available. The cost of finding and matching external resources is reduced, the propensity to negotiate and cooperate is stimulated, and external communication and cooperation are increased. Most importantly, it facilitates the possibility of transformation [27]. At the same time, with sufficient competition, effective use of information and high incentive compatibility, companies become more sensitive to the market. The closer the product research & development and service innovation efforts of enterprises are to customer needs, the higher the success rate of service transformation around customer demands [28]. Thirdly, the improvement of market regulation mechanisms is often accompanied by the continuous development of product markets, factor markets and intermediary organizations. This leads to the optimization and enhancement of resource allocation efficiency. It makes the redundant resources of manufacturing enterprises flow to service link with high added-value, which in turn promotes the service transformation of manufacturing enterprises. In conclusion, the higher the degree of market regulation, the stronger the willingness of manufacturing enterprises to transform into service-oriented, and the greater the opportunities for manufacturing enterprises to transform into service-oriented. Thus, the following assumption is made: Hypothesis 2: There is a positive correlation between the degree of market regulation and the service transformation of manufacturing enterprises.
The in-depth integration of business environment optimization and legal construction is an important part of the strategy of law-based governance [29]. The 20 th CPC Central Committee Report mentions that a good business environment implies a high level of legalization. Enterprises are more willing to use intermediary services to access external information and heterogeneous resources, thus reducing the infringement of their rights. This will facilitate the transformation of manufacturing enterprises in a rule of law, transparent and predictable external environment. Studies found that the development of service industry is highly sensitive and dependent on institutions. As for service products, they are typically institution-intensive due to their trust, posteriori and heterogeneous attributes. There is a significant positive correlation between the quality of contract maintenance systems and the share of services measured by a country's level of rule of law [30]. North (2008) argued that a regulated country should have an efficient judicial system to resolve disputes over the signing and enforcement of contracts between the private and public sectors. This facilitated the division of labor and transactions in society and promoted economic growth. A higher level of legalization can provide more robust public services, strengthen property rights protection, improve contract enforcement and reduce financing constraints [31]. A legal environment that is open and transparent is conducive to lowering the risk of service-oriented transformation of manufacturing enterprises and increasing the willingness and success rate of transformation. The high level of legal regulations provides a strong guarantee for the service-oriented transformation of manufacturing enterprises. Thus, the following assumption is made: Hypothesis 3: There is a positive correlation between the level of legalization and the service transformation of manufacturing enterprises.

Technological innovation ability
Technological innovation ability is gradually formed based on the theory of technological innovation, which covers both static and dynamic dimensions. Static technological innovation ability essentially refers to the knowledge stock resources possessed by enterprises that support the realization of technological innovation activities [32]. The ability to develop new ideas and innovative products, obtain market value, and achieve dynamic development of the organization through the coordination and operation of the above knowledge stock resources, forming the enterprise's dynamic innovation, is referred to as dynamic technological innovation ability.
It not only reflects the strength of product innovation and process improvement, but is also closely integrated with the overall strategy of the enterprise's internal system. It is a comprehensive embodiment of innovation decision-making capabilities, research & development capabilities, manufacturing capabilities, organizational management capabilities and marketing capabilities [33,34]. In the current context of open innovation, technological innovation capability is a comprehensive and synergistic capability based on technological innovation. It includes the ability to integrate technological innovation elements, the ability to commercialize technology and the synergistic ability of technological innovation systems [35], as well as the ability to respond to changes in the external environment such as customer demands and competitors [36]. It has been discovered that the ability of enterprises to integrate technology after collaboration with other partners has a different impact on product innovation and innovation performance [37]. The ability to innovate technologically becomes the foundation for manufacturing businesses to gain a competitive advantage. It achieves service transformation by improving service quality and service innovation capabilities, and influencing the effectiveness of service transformation [38]. Manufacturing companies integrate technological innovation into their product production and customer service processes. They provide feedback on new customer needs during the use of their products and interact with their customers continuously. On the one hand, technological innovation can bring technological advantages to enterprises and is the technical basis for manufacturing enterprises to provide solutions and value-added services to their customers. On the other hand, technological innovation ability can enhance service innovation ability. Research has found that the research and development intensity of manufacturing enterprises can significantly affect the development of new services. Manufacturing enterprises can gain the trust of customers through their superior technological innovation ability, overcome the weakness of inexperience in service and bring about the success of service innovation strategy [39]. First, technological innovation breaks through the excessive restrictions imposed by the institutional environment on enterprises' pursuit of legitimacy to a certain extent, enhancing their flexibility, adaptability and policy sensitivity. After the government's favorable policies are introduced, enterprises with strong technological innovation capabilities are able to quickly optimize resource allocation, utilize their technological advantages, innovate service products, meet market demands and lead the development of the industry. As a result, the impact of government-initiated institutional innovation is amplified. Technological innovation reduces the dependence of enterprises on government governance. Even if government policies are unfair and administrative intervention is strong, enterprises can enhance the competitiveness of their own products, innovate service products and expand into higher value-added service segments. Second, technological innovation capability serves as a lever between improving market mechanisms and achieving technological innovation. Enterprises with strong technological innovation capabilities can quickly respond to market demand, collect all types of innovation elements, and design and develop high-end service content such as services and comprehensive project solutions [40]. This creates a higher than average profit-added value in the market, meets the diversified needs of the market, amplifies the positive impact of market regulation and development, and generates a market spillover effect. Thirdly, studies show that the business environment has a gateway effect on technological innovation capabilities [41]. Enterprises with strong technological innovation capabilities can first surpass the threshold value and demonstrate the comparative advantage of the business environment. Then expand the legal business environment to facilitate the service-oriented transformation of manufacturing enterprises. Further, a benefit distribution mechanism centered on intellectual property rights will build a sustainable competitive advantage. Thus, the following hypotheses are proposed: Hypothesis 4: Technological innovation capabilities positively moderate the relationship between the institutional environment and the service-oriented transformation of manufacturing enterprises.
Hypothesis 4a: Technological innovation capabilities positively moderate the relationship between the governance of government and the service-oriented transformation of manufacturing enterprises.
Hypothesis 4b: Technological innovation capabilities positively moderate the relationship between market regulation and the service-oriented transformation of manufacturing enterprises.
Hypothesis 4c: Technological innovation capabilities positively moderate the relationship between the legalization and the service-oriented transformation of manufacturing enterprises.
Based on the above analysis, the framework model of this paper is built, as shown in Fig 1.

Sample and data collection
According to the 2012 edition of the Listed Companies Industry Classification Index for manufacturing enterprises of the China Securities Regulatory Commission, this paper conducted the sample selection. The data sources for this study were the China Stock Market Accounting Research database, the WIND database and the Chinese Business Environment Index by Province 2020 Report (hereinafter referred to as the Report). To ensure the normality of the sample data, the following treatments were made,  [43] for the measurement of service transformation in manufacturing enterprises, and after manual screening, the data of non-service transformation enterprises were excluded.
2. the data of ST and � ST listed companies were excluded.
3. outliers and missing samples were excluded.
4. continuous variables were winsorized by 1% up and down to avoid the effect of low end values.
Finally, 4,313 observations were obtained. Stata 14.0 was used for data processing and analysis.

Variable measurement
The service-oriented transformation of manufacturing enterprises is the interpreted variable. According to the motivation for manufacturing enterprise transformation and the endogenous and exogenous connotation attributes of transformation, it can be divided into intra-industry service-oriented transformation and cross-industry service-oriented transformation (Li & Chen, 2011) [44]. The intra-industry service transformation refers to the extension of the industrial chain, that is, from the low-end value chain to the high value-added value chain at both ends. It is measured using the adjusted value-added method [22]. Cross-industry boundary service transformation refers to enterprises that are unable to share existing resources within their established industries and therefore break down industry boundaries to serve a wider range of business areas and explore higher value-added opportunities. The Herfindahl-Hirschman Index was used to measure this (as the study sample was a manually screened sample of manufacturing companies that were confirmed to have undergone service transformation, their higher degree of diversification can reflect to some a greater number of interindustry service transformations) [22].
The institutional environment, as an explanatory variable, includes three dimensions: the level of government governance, the level of market standardization and the level of legalization. Based on the characteristics of the institutional environment during the economic transition period, the Report by Wang et al. (2020) was used. Government governance was measured by the Index of "Openness, Fairness and Justice Policies" and the Index of "Administrative Intervention and Government Integrity and Efficiency". The market regularization was measured by the "Market Environment and Intermediary Services" Index. The level of legalization was measured by the "Legal Environment for Enterprise" Index [45][46][47]. It includes the effective law enforcement of the public security law, the performance of the enterprise contract, the protection of intellectual products, the property and personal safety of the enterprise and the operator.
The moderating variable refers to the ability to innovate technologically. The indicators with a high degree of consensus in domestic studies were all measured in terms of innovation management capability, research & development input intensity and input-output capability [48,49]. Based on the characteristics of the information disclosed in the database, research & development input intensity was more objective and reliable, therefore, based on the existing studies, it was adopted in this study [50].
In order to ensure the authenticity and reliability of the research conclusions, control variables such as enterprise size [ , property right nature are added in this paper. The type of industry was also controlled to avoid the effects of heterogeneity arising from differences in manufacturing industry segments. The measurement of each variable is shown in Table 1.

Model
To examine the impact of the dimensions of the institutional environment on the service transformation of manufacturing enterprises, the following econometric model was constructed in this paper.
where ST i,t represents the degree of service-oriented transformation of manufacturing enterprises, including the service-oriented transformation intra-industry (ST1 i,t ) and the across industry boundaries (ST2 i,t ). Institution 3i,t represents the institutional environment for the manufacturing enterprises, including three dimensions, the government governance (Gov i,t ), the market regularization (Mar i,t ) and the legalization (Leg i,t ). μ i denotes individual effects that do not vary over time. ε i,t indicates random error terms. For controlled variables, there are enterprises size (Size i,t ), enterprises age(Age i,t ), asset specificity (AS i,t ), organizational redundancy (Slack i,t ), enterprises growth (Growth i,t ), nature of property (State i,t ), industry factors (IND) and sampling year (Year).
To test the impact of technological innovation capability on the relationship between the institutional environment and the service-oriented transformation of manufacturing enterprises, the following econometric model was constructed.
where TIC i,t denotes technological innovation capability. The names and meanings of the other variables are the same as in model (1).

Results and discussion
The results of the descriptive statistical analysis of the main variables are shown in Table 2, including the mean, standard deviation, minimum and maximum values of each variable. The mean value of ST1 was 0.885 and 0.192 for ST2, respectively. It indicated that intra-industry service transformation was currently dominating service transformation in Chinese manufacturing enterprises. Only some enterprises carried out service transformation across industry boundaries as an assistance. The average value of the technological innovation ability of enterprises was 0.429. This demonstrated that the majority of companies implementing service transformation attached more importance to technological innovation and had some capacity for technological innovation. The correlation coefficients between the variables are shown in Table 3. The results revealed correlation coefficients of 0.130 (P<0.01) between Gov and Mar, 0.575 (P<0.01) between Gov and Leg, and 0.413 (P<0.01) between Mar and Leg, respectively, indicating a significant positive correlation between them. To avoid bias in the results due to the problem of multicollinearity and heteroskedasticity among the variables, the paper also conducted the variance inflation factor (VIF) test for covariance and the WHITE test. The VIF test showed that the maximum value for each variable was 7.46, which was less than 10, indicating that the problem of multicollinearity was not serious.
Models M1, M2 and M3 tested the impact of the three dimensions of the institutional environment on service transformation intra-industry, respectively. Models M4, M5 and M6 tested the impact of the three dimensions of the institutional environment on service transformation across industry boundaries, respectively. As shown in Table 4. The results showed that the level of government governance significantly positively influenced intra-industry service transformation at the 1% level (β = 0.022, P<0.01) and cross-industry boundary service transformation at the 10% level (β = 0.021, P<0.1), respectively. It indicated that improved government  governance significantly contributed to the service transformation of manufacturing enterprises, and was more pronounced with intra-industry transformation. Hypothesis 1 was confirmed. In addition, the market regulation significantly and positively affected intra-industry service transformation at the 1% level (β = 0.040, P<0.01), while there was no significant effect on service transformation across industry boundaries. The likely reason for this was that enterprises prioritized resources for in-industry transformation based on transformation risk and market efficiency considerations. Hypothesis 2 was partially confirmed. Besides, legalization significantly and positively influenced intra-industry service transformation at the 1% level (β = 0.020, P<0.01) and cross-industry boundary service transformation at the 10% level (β = 0.013, P<0.1). It demonstrated that the improvement of the legal business environment is conducive to the successful service-oriented transformation of enterprises. Moreover, it was significantly more conducive to transformations within industries than across industry boundaries. Hypothesis 3 was confirmed. The results of the moderating effect of technological innovation capability are shown in Table 5. The regression results showed that for intra-industry transformation, the interaction term between technological innovation capability and the level of government governance was significantly positive (β = 0.435, P<0.01). This indicated that technological innovation capability strengthened the degree of influence of the level of government governance on the intraindustry service transformation of manufacturing enterprises. For cross-industry boundary transition, the interaction term between technological innovation capability and the level of government governance level was significantly negative (β = -0.479, P<0.01). This showed that the technological innovation capability negatively moderated the level of government governance and the level of service transformation of manufacturing enterprises across industry boundaries. The possible explanation was that the pursuit and consideration of legitimacy and efficiency differed when there were differences in the technological innovation capabilities of different firms. This could thus have a heterogeneous impact on the areas in which enterprises are involved in service transformation. Technological innovation capability had a positive effect on the relationship between the degree of market regulation and the service transformation of manufacturing firms within their industries (β = 0.423, P<0.1). However, there was no significant influence on the relationship between the degree of market regulation and the service transformation of manufacturing enterprises across industry boundaries. In addition, technological innovation ability had a positive effect on the relationship between the level of legalization and the service transformation of manufacturing enterprises (β = 0.206, P<0.1). In contrast, there was no significant influence on the relationship between legalization and the service transformation of manufacturing enterprises across industry boundaries. Therefore, the relationship between technological innovation capability and the institutional environment and the service transformation of manufacturing enterprises across industry boundaries all had a significant positive effect, in line with the hypothesis. However, none of the moderating effects on the positive influence relationship between the institutional environment and the service transformation of manufacturing enterprises across industry boundaries were proven, as shown in Fig 2. This led to an in-depth consideration of the mechanisms underlying the role of technological innovation capability, institutional environment and service-oriented transformation of manufacturing enterprises across industry boundaries. Firstly, the service transformation of manufacturing companies across industry boundaries required more cross-border service innovation. While this was affected by multiple factors, such as knowledge search, integration ability, managers' focus, innovation paradigm, product complexity, etc., rather than a single factor of technological innovation acting independently. Enterprises were expected to search for information, knowledge and access to a wider range of technological resources across organizational boundaries. Further, these resources needed to be internalized, absorbed and integrated. Therefore, it was difficult to identify and measure the part of the institutional environment that played a separate role in the cross-border transformation of manufacturing enterprises. Secondly, there was heterogeneity in the choice of innovation approach by manufacturing enterprises. It has been shown that in the present state of established innovation inputs, exploitative innovation was chosen much more than exploratory innovation based on risk and difficulty considerations [51]. Utilization-based innovation was an ongoing innovation of an existing product or service based on available knowledge. It was more based within the industry. However, exploration-based innovation was a departure from the original technological trajectory to expand into new business areas through a broader search for knowledge and access to external heterogeneous resources. There was a very high degree of uncertainty and risk. In other words, utilization-based innovation preferred to work within the industry, while exploration-based innovation was more conducive to cross-border transformation. As a result, technological innovation capabilities, mainly utilization-based innovation, played a more significant moderating role in the intra-industry servitization transformation of manufacturing enterprises.
The following robustness tests were conducted to ensure the reliability of the study findings.
1. Changed the method of variable measurement. As the institutional environment changes, it first needs to act on managers' perceptions of the external environment and make strategic adjustments to adopt service transformation strategies. Therefore, as the dependent variable, the degree of service transformation at manufacturing firms, may have a lag effect. Therefore, the degree of service transformation was re-estimated with a one-period lag. The result showed that the significance of the influence of the institutional environment and technological innovation capability on the degree of service transformation of manufacturing enterprises did not change obviously.
2. Added control variables. The overall level of economic development of a region and the business efficiency of the enterprises themselves will indirectly affect the degree of serviceoriented transformation of enterprises. Therefore, this paper also controlled for the level of inter-provincial GDP per capita and the operating efficiency of enterprises for correlation tests. The main hypothesis is still valid.
3. Changed the parameter estimation method. A 50% quantile regression was used to further understand the potential relationship between the independent variable institutional environment and the dependent variable degree of servitization transition. The approach of Zhang et al. (2013) [52] and the advantage of quantile regression being insensitive to outliers were adopted.
4. Changed the sample size. As there was policy and market efficiency variability in the institutional environment in different regions. Therefore, referring to Wei et al. (2010) [51], a re-estimation test was conducted after excluding some of the western and northeastern provinces from the sample, with reference to the practice of Wei et al. (2010) [51], as shown in Table 8. The new results were found to be insignificantly unchanged from the previous findings. This further indicated the robustness of the paper's conclusions.

Heterogeneity analysis of the nature of enterprise property
In the sample, there were 1,257 state-owned enterprises and 3,056 non-state-owned enterprises (private, foreign or other). It showed that non-state manufacturing enterprises were the mainstay of industrial structural transformation and upgrading, and were more willing to transform into services than state-owned manufacturing enterprises. State-owned enterprises had less incentive to pursue legitimacy due to their controlling interest in the central or local government and more government intervention. Policy sensitivity and market efficiency were lower than for non-state-owned enterprises, corresponding to their weaker environmental dependence for service-oriented transformation. Non-state enterprises, on the other hand, had a higher degree of flexibility and market resilience, a high degree of sensitivity to policy and a strong desire for technological innovation out of a quest for legitimacy. Their service transformation was more dependent on the environment. Therefore, it is necessary to further explore the differential impact of the institutional environment and technological innovation capabilities on manufacturing enterprises with various property rights systems, and thus develop divergent strategies. While regulating the service-oriented transformation of state-owned enterprises, the service transformation and upgrading of non-state-owned manufacturing enterprises should be well guided and supported. The institutional environment had a far greater positive impact on non-state enterprises than on state enterprises, as shown in Table 6. The three dimensions of institutional environment, government governance, market regulation and legalization, all significantly and positively influenced the degree of intra-industry transformation of non-state manufacturing enterprises at the 1% level. However, only market regulation significantly and positively influenced the intra-industry service transformation of state-owned enterprises. This was related to the current system of state-owned enterprises in China. Whereas the development of nonstate-owned enterprises was more influenced by factors such as financing constraints and fiscal and taxation policies, and had significant external institutional sensitivity. The ability to innovate technologically enhanced the positive impact of the institutional environment on the intra-industry transformation of state-owned manufacturing enterprises. In contrast, there was little influence on the relationship between the institutional environment and the intraindustry transformation of non-state-owned manufacturing enterprises. On the one hand, this was due to the significant differences between state-owned enterprises and non-state-owned enterprises in terms of innovation incentives, resource base, etc., and their sensitivity to external innovation resources [53]. On the other hand, the intra-industry service-oriented transformation of manufacturing enterprises was mainly a utilization-based innovation with accumulated effectiveness, which was more influenced by the innovation resources that could be gathered in the relevant fields. Therefore, when state-owned enterprises had advantages in financial subsidies and financing channels, and were less constrained by the lack of innovation resources, they could effectively take benefits of innovation resources as long as their innovation capacity was improved [52]. This promotes the service-oriented transformation and upgrading of manufacturing enterprises. Non-state enterprises, on the other hand, had more limited external financing constraints, policy support and relatively insufficient innovation resources. Even if technological innovation capabilities improved, there was no discernible moderating effect on service transformation in the short term.
There was also variability in the impact of the institutional environment and technological innovation capabilities on the service transformation of manufacturing enterprises across industry boundaries. However, this variability was less than the impact on transformation within industries, as shown in Table 7. The level of government governance and legalization in the institutional environment facilitated the degree of service transformation of non-state manufacturing enterprises across industry boundaries. This positive impact was weakened by Table 7. Heterogeneity in the transformation of inter-industry boundaries of different property enterprises. the ability to innovate with technology. This was primarily because for cross-border servitization transformation, it relied more on exploration-based innovation. This was primarily because for cross-border service transformation, it relied more on exploration-based innovation. It required access to more external heterogeneous resources, and both investment and risk were relatively high. Non-state-owned manufacturing enterprises with a certain level of technological innovation capability and innovation resources will prioritize intra-industry transformation over cross-border transformation. However, the degree of market regulation had no obvious influence on the cross-border service transformation of non-state-owned manufacturing enterprises. This was mainly due to the fact that the cross-border transformation itself spanned a relatively large distance from the existing business of the enterprise, and the initial investment was also large. The spontaneous adjustment of resources across industries guided by market laws was also a slow process, and the effects were presented with a strong lag. The dimensions of technological innovation capability and institutional environment had no obvious influence on the cross-border transformation of state-owned enterprises, which was consistent with the expectations of this paper. State-owned enterprises were influenced by the nature of their controlling stakes and undertook important national strategic planning and social responsibilities. Achieving cross-border transformation was a major strategic change and was mainly influenced by the controlling decision maker. The influence of environmental attributes was more indirect.

Analysis of regional differences
The development of China's regions is uneven. There are significant regional differences in institutional factors such as the level of government governance, the market-oriented reform process and the legalized business environment. The institutional environment in the eastern region is significantly better than that in the western region. Therefore, the impact of regional differences on the transformation of servitization needs to be further removed to enhance the generalizability of the study's findings. Based on the grouping of provinces in Wang et al.'s (2020) Report, the country was divided into four regions, namely the eastern, central, western and northeastern regions, as detailed in the notes. The results of the regression analysis showed a high degree of consistency between the central and western regions, so these two regions were combined for analysis. The Northeast region had a smaller sample size and was less representative and was discarded. Therefore, the results are presented in this paper in two groups for the eastern and midwest regions, as shown in Table 8. The institutional environment in the eastern region had the most significant impact on the service-oriented transformation of manufacturing enterprises. The government governance, market regulation and legalized business environment all positively influenced the service transformation of manufacturing enterprises within their industries at the 1% level. However, only legalized business environment had a significant positive impact on the service transformation across industry boundaries at the 1% level. In contrast, government governance and market regulation did not show a direct impact on service transformation across borders. The impact of the level of government governance on the service-oriented transformation of manufacturing enterprises was significantly mitigated by technological innovation capability. But neither the institutional environment nor the technological innovation capability in the midwest regions showed a significant impact on the service-oriented transformation of manufacturing enterprises. This was related to the large differences in the level of economic development, regional innovation capacity and policy and institutional environment in the midwest regions. In addition, there were fewer samples eligible for the study in these two regions.
Further research showed that there was a large gap between the level of transformation of manufacturing services in the eastern region and the midwest regions. Meanwhile, there were significant differences in the roles played by the institutional environment and technological innovation capabilities. In the eastern region, the government policy environment was well established, the market was more standardized and the level of technological innovation capacity was generally higher. As a result, the influence of the institutional environment and technological innovation capacity on service transformation exhibited regular development. To some extent, the current institutional environment met the need for service-oriented transformation and upgrading of the manufacturing sector. This was in accordance with the findings of Zhu et al. . Affected by innovation infrastructure, quality of industry-university-research linkages, technology spillover effects and industry cluster environments, the eastern and midwest regions had a pronounced gap in their economic development levels. The gap in innovation ability was even more obvious and tended to widen.

Conclusions and recommendations
A suitable institutional environment was an important driver for the implementation of a service-oriented transformation strategy in enterprises. Enterprises matched their internal strategies with the external environment through continuous strategic change and institutional innovation. This in turn led to access to the heterogeneous resources needed for organizational legitimacy and development. While technological innovation can, to a certain extent, reduce enterprises' perception of stress in the external institutional environment, allowing them to gain more development opportunities and stronger environmental adaptability. This study showed that, 1. The improvement of government governance contributed significantly to the service transformation of manufacturing enterprises, and the transformation was most evident within industries.
2. The development of market regulation facilitated the intra-industry service transformation of manufacturing enterprises in the short term. It had no significant impact on service transformation across industry boundaries.
3. The promotion of a legislated business environment was conducive to the successful service-oriented transformation of enterprises. Moreover, the boosting effect was significantly greater within the industry than across the industry boundary.
4. Technological innovation capabilities were the basis for the strategic transformation of enterprises. In the industry, mostly utilization-based innovation played a role, influenced by the current choice of enterprise innovation approaches. This intensified the influence of the institutional environment on manufacturing firms undertaking intra-industry servitization transformations. However, the impact of the institutional environment on service transformation across industry boundaries was not significantly moderated.
5. The impact of the institutional environment on non-state enterprises was much stronger than that of state enterprises. Also, the impact on the extent of intra-industry transformation was greater than that across industry boundaries.
6. The institutional environment varied considerably across regions, and the impact on the service-oriented transformation of manufacturing enterprises also differed significantly.
It was easy to observe through the service transformation practices of Chinese manufacturing enterprises that in order to avoid the risks of transformation and overcome the "service paradox", most of them preferred the relatively robust transformation within the industry. As a result, a favorable institutional environment was firstly revealed to be effective in the transformation within the industry. The risks and upfront investment of transitioning across industry boundaries were relatively large. Therefore, only a few large manufacturing enterprises with strong technological innovation capabilities and strengths chose to enter. At the same time, cross-border transformation required cross-border information and knowledge searches and the integration of more external resources. The factors that influenced it were more diverse. Specifically, the institutional environment integrated with other situational factors worked together, while the role of a single factor was not obvious. In-depth analysis revealed that government policy guidance and improvement of the business environment can more directly promote the cross-border service transformation of manufacturing enterprises than the market's regulated development. This was because favorable policies can quickly influence the allocation of resources by the enterprises. They will prioritise resources in areas with good growth prospects and high added value. Improvements in the business environment will directly reduce the cost of doing business and the barriers to entry. It will also change the manager's perception of the environment, and lead to more optimistic strategic decisions. Following the efficiency mechanism, the long-term effects of a regulated market are self-evident. However, it will require a prolonged transmission period and therefore the short-term effects are difficult to see.
Based on the above findings, this paper proposes two main levels of government and enterprises.
1. Government departments should continue to promote institutional innovation and build an institutional environment that matches the service-oriented transformation of the manufacturing industry. This will increase manufacturing enterprises' willingness and success rate in service transformation. At the primary stage of service-oriented transformation, the government needs to improve its governance, establish long-term market regulation mechanism and optimize the legalized business environment, all of which are crucial. This is because, firstly, the government still controls key resources to a large extent during the economic transition period. The government's policy direction is the wind vane for business transformation. More manufacturing enterprises can benefit from the service-oriented transformation by enhancing the degree of openness, fairness and justice of government policies. In particular, for non-state enterprises, which are more policy-sensitive and numerous in number, increasing policy inclination, reducing administrative intervention, enhancing government integrity and efficiency, and lowering industry entry barriers & resource acquisition costs can effectively carry out cross-industry boundary transformation on the basis of strengthening their transformation within the industry. Secondly, the pursuit of efficiency is inevitable under the premise of conforming to government policy guidance. The establishment of a long-term market regulation mechanism will further optimize the allocation of resources. It will guide the integration of resources across borders on the basis of promoting service-oriented transformation within the industry, which will in turn lead to cross-border service-oriented transformation and enhance the degree of transformation and upgrading. Thirdly, enhancing the impartiality and efficiency of the judiciary, creating a good legalized business environment, promoting the normal performance of contracts, improving the level of social credit and reducing transaction costs can all improve the success rate of transformation. Finally, when the state carries out the top-level system design, it can appropriately tilt its policies towards the midwest regions. It should be done to take advantage of the situation and adapt to local conditions. Thus, the gap between the midwest and the eastern regions can be narrowed and the synergistic development of the eastern part leading the central and western parts can be achieved.
2. Enterprises should strengthen their sensitivity to the external environment. Identify and respond timely to the pressures brought by the different components of the institutional environment on the transformation of enterprises, while enhancing technological innovation capabilities. Ensure the positive effect of the institutional environment on service-oriented transformation and further avoid or mitigate institutional risks. Specifically, firstly, enterprises should correctly interpret the guidance of government policy documents and relevant laws and regulations, and make corresponding adjustments to their transformation strategies. When the state introduces favorable policies for service-oriented transformation, enterprises should quickly integrate internal and external resources, seize external opportunities and explore transformation opportunities. In particular, non-state enterprises with strong policy sensitivity should pay more attention to policy trends. Enterprises need to actively participate in fair competition and promote the development of product and factor markets. Based on the pursuit of efficiency, align themselves with the benchmark companies in the industry that are transforming their services. To promote a higher degree of market regulation, which in turn will optimize resource allocation to generate more transformation opportunities. Increase the protection of property rights and contract enforcement. Access to external information and heterogeneous resources through intermediary services in accordance with the law. Collaborate with the government to create a beneficial legal environment, which in turn will promote successful transformation. Secondly, technological innovation is a constant topic for enterprises. Traditional manufacturing industry should also nurture its technological innovation capabilities and choose the type of innovation that matches the type of transformation. Manufacturing enterprises undertaking service-oriented transformation in the industry should continue to enhance their utilization-based innovation capabilities. For enterprises conducting cross-industry boundary service transformation, they should focus on building breakthrough innovation capabilities alongside utilization-based innovation to better fit the external institutional environment and bring about maximum transformation effectiveness.

Limitations and future direction
This study has certain limitations that must be mentioned. The data subject to institutional environment limitations are from the Report, which is only updated to the end of 2019. Although the institutional environment changes slowly and with some lags. However, the last three years have been in the post-epidemic era and the rapid application of digital technology could have an impact on the institutional environment and service-oriented transformation. Future research can be conducted in two ways. On the one hand, digital transformation technology and relevant data in the post-epidemic era are introduced into the model as moderating variables to comprehensively examine the impact mechanism of the institutional environment on service-oriented transformation under the influence of these combined factors. On the other hand, data from Chinese enterprises will be used as a sample to directly study the new influence of digital transformation, big data, artificial intelligence and other technologies on the servitization transformation of manufacturing enterprises, so as to provide the empirical evidence for the servitization transformation of global manufacturing enterprises.